To allocate means to assign or distribute resources according to a specific purpose or plan.
In finance, asset allocation means assigning your investment funds to different types of assets. Learning how to allocate your assets is very important because you want to be able to make the most of your funds in a responsible manner, so that the risk you take will always be acceptable. In deciding how to allocate your assets you should ask for a professional’s help. Make sure that you go in informed.
Some of the things you must do and learn before allocating your asset would be to:
Learn more about the types of assets you can invest in. Think risk and return. Potential for higher returns always come with greater risks.
Look at your present investment portfolio and figure out if you have to diversify. As they say, don’t put your eggs in one basket.
Gauge your risk tolerance. Do not do something that will cause you too much stress. For example, the money you earn should be enough to cover your medical bills if you get ill worrying over your investments!
Consider your age and reasons for investing. This will give you an idea of how fast and how much you need your money to grow.
Review your asset allocation plan annually. Changes in your personal life and financial situation may result in the need for changes to your current plan. Reallocate assets whenever you need to.